Senate dips toes into financial reform pool

Bipartisan compromises approved

debate on controversial measures still to come

May 05, 2010|By Janet Hook and Jim Puzzanghera, Washington Bureau

WASHINGTON — — The Senate, opening debate on amendments to the sweeping overhaul of Wall Street regulation, on Wednesday voted to establish the principle that the era of government-funded bank bailouts was over and adopted a bipartisan compromise to set up new procedures for averting a financial meltdown like the 2008 crisis.

On a 96-1 vote, the Senate adopted an amendment by Sen. Barbara Boxer, D-Calif., declaring that no taxpayer funds would be used to shore up failing financial institutions in the future.

The Senate also adopted, 93-5, a hard-won bipartisan compromise that dropped a proposed $50 billion fund to cover costs of liquidating failing firms — a fund that would have been financed by the banks. Critics said the fund's existence would encourage future bailouts, rather than prevent them.

With the adoption of the amendments — the first since the legislation came to the Senate floor last week — the way was cleared for what is expected to be at least a week of debate on even more contentious issues.

Republicans want to scale back the bill's proposal to establish a new bureau within the Federal Reserve to focus on consumer protection in investments and finance. The legislation's critics, backed by a ferocious lobbying campaign, also hope to change the bill's new rules and transparency requirements for derivatives, the complicated and often-risky financial contracts that were a big part of the 2008 Wall Street meltdown.

But before turning to those issues, both parties wanted to address Republicans' charges that the bill did not do enough to close the door on future government bailouts. Senate Banking Committee Chairman Christopher Dodd, D-Conn., said those complaints were unfounded, but said that Boxer's amendment would put an "exclamation point" on the bill's intent.

Boxer said, "If there's one thing we should all be able to agree on it is this: The American taxpayers should never again have to bail out Wall Street firms that gambled away our savings and wreaked havoc on our economy."

The one senator to oppose Boxer's amendment was Tom Coburn, R-Okla.

Republicans insisted on further guarantees, which were included in the compromise agreed to by Dodd and Sen. Richard Shelby of Alabama, ranking Republican on the banking committee.

The five voting against that amendment were four Republicans — Coburn, John Cornyn of Texas, Jim DeMint of South Carolina, Orrin Hatch of Utah — and one Democrat, Byron Dorgan of North Dakota.

The major change was the elimination of the $50 billion fund that would have been paid in advance by financial institutions to cover government costs if it seized and dismantled any large financial firm on the brink of bankruptcy.

The financial industry strongly opposed the fund, as did Shelby and other Republicans, who argued that having such a fund in place would make it easier to bail out companies in the future, or to divert the money for other uses.

The House version of the legislation contains a $150 billion prepaid fund, but the Obama administration and Dodd were not strong supporters of such a fund.